<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 30, 1995
SOFTKEY INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0-13069 94-2562108
- --------------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
One Athenaeum Street, Cambridge, Massachusetts 02142
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
Registrant's telephone number, including area code: (617) 494-1200
N/A
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT
Total Number of Pages:
Exhibit Index Appears on Page 6
<PAGE> 2
Item 5. Other Events.
- ----------------------
MERGER AGREEMENT. On October 31, 1995, SoftKey International
Inc. ("SoftKey") and Minnesota Educational Computing Corporation (MECC)
("MECC") announced the execution of a definitive merger agreement under which
SoftKey will acquire MECC, a publisher and distributor of high-quality
educational software for children, in a tax-free, stock-for-stock transaction
valued at a total of approximately $370 million. The transaction, which has
been unanimously approved by both Boards of Directors, will be accounted for on
a purchase accounting basis and is expected to be accretive to SoftKey on an
operating cash flow per share basis.
In the proposed transaction, each outstanding share of MECC
common stock will be exchanged for a number of shares (the "Exchange Ratio") of
SoftKey common stock determined by dividing $40.00 by the volume-weighted
average price for SoftKey Common Stock on the Nasdaq National Market ("NNM")
for the 20 trading days ending three trading days prior to the effective time
of the acquisition; provided, however, that in no event will the Exchange
Ratio be greater than 1.14286 or less than .88889.
The transaction is subject to certain conditions, including
stockholder approvals, the effectiveness of a registration statement under
federal securities laws relating to the SoftKey common stock to be issued in
the merger, the listing of such SoftKey shares on the NNM and the expiration of
applicable waiting periods under pre-merger notification regulations.
The shares of SoftKey common stock will be offered to MECC
stockholders only through a prospectus forming part of a registration statement
which will be filed with the Securities and Exchange Commission.
A copy of the press release announcing the merger agreement is
filed as Exhibit 99.1 hereto and incorporated by reference herein.
TENDER OFFER/MERGER PROPOSAL. On October 30, 1995, SoftKey
also announced that it was commencing a cash tender offer, through a wholly
owned subsidiary, at
2
<PAGE> 3
a price of $65 per share for 4,642,507 shares of common stock of The Learning
Company, representing a majority of the shares of The Learning Company common
stock on a fully diluted basis.
The offer is the first step in a proposed two-step acquisition
of The Learning Company by SoftKey. In the second step, the remaining shares
of The Learning Company common stock outstanding and not owned by SoftKey would
be acquired in a merger for SoftKey common stock. Each share of The Learning
Company common stock would be converted into SoftKey common stock having the
value, based on trading prices shortly prior to the merger, of $65 per share,
subject to a maximum exchange ratio of 1.8571 SoftKey shares per share of The
Learning Company common stock.
The tender offer and second-step merger are subject to a
number of conditions, including redemption or inapplicability of The Learning
Company's poison pill rights plan.
A copy of the press release announcing the tender offer and
merger proposal is filed as Exhibit 99.2 hereto and incorporated by reference
herein.
PRO FORMA FINANCIAL STATEMENTS. In connection with the tender
offer, SoftKey released certain unaudited pro forma financial information
giving effect to the transactions contemplated by the Merger Agreement between
SoftKey and MECC.
A copy of the pro forma financial information is filed as
Exhibit 99.3 hereto and incorporated by reference herein.
3
<PAGE> 4
Item 7. (c) Exhibits.
---------
99.1 Press release dated October 30, 1995
relating to the merger agreement between
SoftKey International Inc. and Minnesota
Educational Computing Corporation (MECC)
99.2 Press release dated October 30, 1995
relating to the cash tender offer by
SoftKey International Inc. for a majority
of The Learning Company common stock at $65
per share as the first step in a two-part
merger proposal
99.3 Pro forma combined condensed consolidated
financial information at and for the nine
months ended September 30, 1995 and at and
for the year ended December 31, 1994
4
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SOFTKEY INTERNATIONAL INC.
--------------------------
(Registrant)
By: /s/ Neal S. Winneg
---------------------
Neal S. Winneg
Vice President
October 30, 1995
- ----------------
(Date)
5
<PAGE> 6
<TABLE>
Exhibit Index
-------------
<CAPTION>
Exhibit Sequential
No. Exhibit Description Page No.
------- ------------------- -----------
<S> <C> <C>
99.1 Press release dated October 30, 1995 relating to the merger agreement
between SoftKey International Inc. and Minnesota Educational Computing
Corporation (MECC)
99.2 Press release dated October 30, 1995 relating to the cash tender offer
by SoftKey International Inc. for a majority of The Learning Company
common stock at $65 per share as the first step in a two-part merger
proposal
99.3 Pro forma combined condensed consolidated financial information at and
for the nine months ended September 30, 1995 and at and for the year
ended December 31, 1994
</TABLE>
6
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
CONTACTS:
John Suske
SoftKey International, Inc.
617/494-5816
Donald W. Anderson
MECC
612/569-1513
Joele Frank/Chuck Burgess
Abernathy MacGregor Scanlon
212/371-5999
SOFTKEY INTERNATIONAL AND MINNESOTA EDUCATIONAL COMPUTING CORP.
ANNOUNCE MERGER AGREEMENT
--------------------------------------------------
CAMBRIDGE, MASS (October 30, 1995) -- SoftKey International Inc. (NASDAQ: SKEY;
Toronto Stock Exchange: SSK) and Minnesota Educational Computing Corporation
(MECC) (NASDAQ: MECC) today announced they have entered into a definitive
merger agreement in which SoftKey will acquire MECC, a publisher and
distributor of high-quality educational software for children, in a tax-free,
stock-for-stock transaction valued at a total of approximately $370 million.
The transaction, which has been unanimously approved by both Boards of
Directors, will be accounted for on a purchase accounting basis and is expected
to be accretive to SoftKey on an operating cash flow per share basis.
In the proposed transaction, each outstanding share of MECC common stock will
be exchanged for $40.00 of SoftKey common stock as long as the volume-weighted
average price for SoftKey for the 20 trading days three trading days prior to
closing is between $35.00 and $45.00. The exchange ratio is fixed below $35.00
and above $45.00. Using Friday, October 27, 1995, close of market prices for
MECC and SoftKey, the exchange ratio would be 1.049 shares of SoftKey for each
share of MECC.
Michael Perik, SoftKey's Chief Executive Officer said, "MECC is a leading
developer in the educational software market with over 190 titles such as
Oregon Trail II. It will be a great asset for SoftKey. SoftKey's extensive
distribution in the retail, direct mail, international and OEM markets will
allow us to increase significantly MECC's share in the home education market.
-more-
<PAGE> 2
-2-
Kevin O'Leary, SoftKey's President, said, "There is no overlap in the MECC
product mix with SoftKey's. This further enhances SoftKey's shelf space in
retail with proprietary brand name educational titles in math, social studies,
language arts and science. Also, MECC's 22 year old franchise in the creation
of educational software for schools provides SoftKey with proven development
talent in the educational market. We will be applying our proven strategy of
brand line extension, so that we can provide great educational software at great
prices for all people."
Dale E. LaFrenz, MECC's President/CEO, said, "This merger provides MECC with
very significant opportunities to leverage its position in both the school and
home educational software markets. MECC's outstanding products have been well
received in both markets and they will benefit greatly from SoftKey's powerful
distribution. The combination of SoftKey's powerful and effective retail
distribution and MECC's well-established direct-to-school distribution will
establish a new and improved model for the educational software industry."
Charles L. Palmer, Chairman of the Board of MECC, and President and Principal
of North American Business Development Company, L.L.C., the general partner of
North American Fund II, L.P., reported that North American Fund II, L.P. has
agreed to vote 9.9% of the outstanding stock of MECC in favor of the merger.
Both Mr. Palmer and Mr. LaFrenz will join SoftKey's Board of Directors.
The transaction is subject to certain conditions, including stockholder
approvals, the effectiveness of a registration statement under federal
securities laws relating to the SoftKey common stock to be issued in the
merger, and the expiration of applicable waiting periods under pre-merger
notification regulations.
Bear, Stearns & Co. Inc. is acting as financial advisor to SoftKey. Allen &
Company Incorporated is acting as financial advisor to MECC.
Minnesota Educational Computing Corporation publishes and distributes a number
of retail software titles including The Oregon Trail, Word Munchers, Number
Munchers and Storybook Weaver. MECC's software content is concentrated on math
and problem solving, language arts and reading, writing and creativity, social
studies and history, and science and interdisciplinary products.
SoftKey International Inc. is ranked as one of the world's largest consumer
software publishers by the 1995 Soft-Letter 100. SoftKey develops, publishes
and markets over 300 consumer software titles targeted at the home user in the
productivity, 'edutainment' and lifestyle categories in North America and
distributes additional products internationally. SoftKey's products are sold
in more than 19,000 stores in more than 40 countries in the retail, direct mail
and OEM sales channels.
-more-
<PAGE> 3
-3-
SoftKey's products offerings include popular titles such as Calendar Creator
Plus(TM), BodyWorks(TM) 4.0, The American Heritage(R) Talking Dictionary,
SPORTS ILLUSTRATED Swimsuit Calendar, Infopedia(TM), KeyCAD Complete(TM),
Mosby's Medical Encyclopedia, Time Almanac and the Platinum(TM) jewel case,
KeyKids(TM) and PowerPak(TM) lines.
The shares of SoftKey common stock will be offered to MECC stockholders only
through a prospectus forming part of a registration statement which will be
filed with the Securities and Exchange Commission.
# # #
<PAGE> 4
-5-
SoftKey International Inc. is ranked as one of the world's largest consumer
software publishers by the 1995 Soft-Letter 100. SoftKey develops, publishes
and markets over 300 consumer software titles targeted at the home user in the
edutainment, lifestyle and productivity categories in North America and
distributes additional products internationally. SoftKey's product offerings
include popular titles such as Calendar Creator Plus(TM), BodyWorks(TM) 4.0,
The American Heritage(R) Talking Dictionary, SPORTS ILLUSTRATED Swimsuit
Calendar, Infopedia(TM), KeyCAD Complete(TM), Mosby's Medical Encyclopedia,
Time Almanac and the Platinum(TM) jewel case, KeyKids(TM) and PowerPak(TM)
lines.
The participants in the planned proxy solicitation will include
SoftKey and the following directors and executive officers of SoftKey:
Michael A. Bell (Director), Robert Gagnon (Director), Kevin O'Leary
(Director, President), Michael J. Perik (Chairman of the Board, Chief
Executive Officer), Robert Rubinoff (Director), Scott M. Sperling
(Director) and R. Scott Murray (Chief Financial Officer). SoftKey is
the beneficial owner of 100 shares of the common stock of The
Learning Company purchased on August 9, 1995 for $56.50 per share in
open market transactions executed on the NASDAQ National Market
System and of 17,500 shares of the common stock of The Learning
Company purchased on October 27, 1995, for an average weighted price
of $55.48 per share in an open market transaction executed on the
NASDAQ National Market System. No directors or executive officers of
SoftKey own any shares of The Learning Company common stock.
Certain other representatives of SoftKey who may become participants
are: John Suske (Consultant), Michael J. Urfirer (Bear Stearns,
Senior Managing Director), Edward M. Rimland (Bear Stearns, Associate
Director), David P. Baxt (Bear Stearns, Associate). None of such
individuals own any shares of The Learning Company common stock. In
the normal course of its business, Bear, Stearns, & Co. Inc. may trade
the debt and equity securities of The Learning Company for its own
account and the account of its customers and, accordingly, may at any
time hold a long or short position in such securities. As of October
27, 1995, Bear, Stearns, & Co. Inc. held a net long position of
172,682 shares of The Learning Company common stock, and had
discretionary authority over accounts with 17,462 shares of The
Learning Company common stock (of which 886 shares were held in
benefit plans for the benefit of Bear, Stearns, & Co. Inc. employees).
# # #
<PAGE> 1
EXHIBIT 99.2
SOFTKEY(LOGO)
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
CONTACTS:
John Suske
SoftKey International
617/494-5816
Joele Frank/Chuck Burgess
Abernathy MacGregor Scanlon
212/371-5999
SOFTKEY TO COMMENCE CASH TENDER OFFER FOR MAJORITY
OF THE LEARNING COMPANY COMMON STOCK AT $65 PER SHARE
AS FIRST STEP IN TWO-PART MERGER PROPOSAL
TRANSACTION OFFERS 17% PREMIUM
TO THE LEARNING COMPANY'S PREVIOUSLY ANNOUNCED MERGER WITH BRODERBUND
-------------------------------------
CAMBRIDGE, MASS (October 30, 1995) - SoftKey International Inc. (NASDAQ: SKEY;
Toronto Stock Exchange: SSK) today announced that, through its wholly owned
subsidiary, it is commencing a cash tender offer at a price of $65 per share
for 4,642,507 shares of The Learning Company (NASDAQ: LRNG) common stock,
representing a majority of the shares of The Learning Company common stock on a
fully diluted basis.
The offer is the first step in a proposed two-step acquisition of The Learning
Company by SoftKey. In the second step, the remaining shares of The Learning
Company common stock outstanding and not owned by SoftKey would be acquired in
a merger for SoftKey common stock. Each share of The Learning Company common
stock would be converted into SoftKey common stock having the value, based on
trading prices shortly prior to the merger, of $65 per share, subject to a
maximum exchange ratio of 1.8571 SoftKey shares per share of The Learning
Company common stock. If the applicable trading value of SoftKey stock for
purposes of the second-step merger was the same as its $38.125 closing price on
Friday, October 27, 1995, each share of The Learning Company would be converted
into 1.7049 shares of SoftKey common stock.
The Learning Company has approximately 9.3 million shares outstanding on a
fully diluted basis, giving the transaction a total value of approximately $606
million. SoftKey's offer represents approximately a 17% premium over the
current value of the consideration offered to The Learning Company's
stockholders in its proposed merger with Broderbund Software, Inc. (NASDAQ:
BROD).
-more-
<PAGE> 2
-2-
SoftKey today is filing a complaint against The Learning Company, members of
The Learning Company's Board of Directors, and Broderbund in the Chancery Court
of Delaware. The complaint seeks injunctive relief requiring The Learning
Company Board of Directors to redeem its stockholder rights plan, a so-called
"poison pill," and to correct false and misleading statements in its Proxy
Statement for the merger with Broderbund. SoftKey is also filing preliminary
proxy materials in connection with its solicitation of The Learning Company
stockholders to vote against the merger with Broderbund. SoftKey also intends
to seek to call a special meeting to remove and replace The Learning Company's
Board of Directors.
The tender offer and second-step merger are subject to a number of conditions,
including redemption or inapplicability of The Learning Company's poison pill
rights plan.
Bear, Stearns & Co. Inc. is acting as financial advisor to SoftKey and dealer
manager for the tender offer.
Following is the full text of the letter from SoftKey Chairman and Chief
Executive Officer, Michael Perik, and SoftKey President, Kevin O'Leary, to The
Learning Company Board of Directors.
Board of Directors
The Learning Company
6493 Kaiser Drive
Fremont, CA 94555
Gentlemen:
After careful consideration, the Board of Directors of SoftKey
International Inc. has authorized us to propose a two-step
transaction in which SoftKey would acquire The Learning Company. Our
$65 per share proposal to acquire The Learning Company for cash and
SoftKey stock is significantly more favorable to your stockholders
than the proposed transaction with Broderbund Software, Inc. --
representing a premium of approximately 17% over the current value of
that transaction. Moreover, we are announcing today a stock-for-stock
acquisition of Minnesota Educational Computing Corporation (MECC) by
SoftKey. The strategic combination of these three companies --
SoftKey, The Learning Company and MECC -- will create a true
powerhouse in the consumer software industry, with a broad selection
of educational and lifestyle titles and a distribution system in
retail, OEM, international and direct mail unmatched by any competitor.
-more-
<PAGE> 3
-3-
Here is why. This combination will bring together The
Learning Company's high-quality educational programs with SoftKey's
extensive line of productivity, 'edutainment' and lifestyle programs
to offer customers a full range of products and services. There is
virtually no overlap in the MECC product mix with SoftKey. This
significantly enhances SoftKey's shelf space in retail with
proprietary brand name educational titles in math, social studies,
geography, arts and science. Also, MECC has 22 years of experience in
the creation of high quality educational software for schools which
will provide SoftKey with proven development talent. The Learning
Company's product mix will further expand and complement SoftKey's and
MECC's educational titles with powerful branded products in the
reading, writing and language categories. We will be applying our
proven strategy of brand line extension so that we can provide
exceptional educational software at affordable prices to a mass home
audience worldwide.
We expect to achieve significant operating synergies and cost
savings by combining SoftKey, MECC and The Learning Company.
Specifically, we will reduce selling costs and general and
administrative expenses, while research and development costs will
remain in tact, if not grow. We expect each transaction to be
immediately accretive to SoftKey on an operating cash flow per share
basis.
As to The Learning Company, we propose that SoftKey acquire
The Learning Company in a two-step transaction, on the terms set forth
in the enclosed merger agreement. In the first step of the
transaction, Kidsco Inc., a wholly owned subsidiary of SoftKey, will
commence a tender offer in which it is offering your stockholders $65
per share of The Learning Company's common stock, net in cash. In the
second-step merger, stockholders of The Learning Company will receive
SoftKey common stock having a value of $65 (based on the
volume-weighted average of the closing prices of SoftKey common stock
on the Nasdaq National Market for the 20 trading days ending three
trading days prior to the stockholder meeting relating to the merger
agreement), but not more than 1.8571 shares of SoftKey common stock,
for each of the remaining outstanding shares of The Learning Company.
Although we are offering terms similar to those contained in
The Learning Company's merger agreement with Broderbund, we are
offering significantly more favorable financial terms and a
transaction structure that provides your stockholders with cash for a
portion of their shares in The Learning Company at the earliest
possible time. We have considered with our advisers all legal and
other requirements, and we do not foresee any difficulties in
completing the prompt acquisition of The Learning Company.
The acquisition of MECC and our proposal to you today are
independent transactions, and neither is conditioned on the other.
-more-
<PAGE> 4
-4-
SoftKey plans to finance the cash tender offer portion of its proposal
with its available cash. As structured, the tender offer will provide
immediate and substantial value for those of your stockholders who prefer it.
In addition, your stockholders who receive SoftKey stock not only receive a
substantial premium but will also be in a position to participate in the future
of an exciting new company -- one of the largest consumer software companies in
the world.
Because of numerous and burdensome measures which The Learning Company
has adopted, which discourage a more favorable bid, including a poison pill
rights plan, the tender offer we are commencing is subject to several
conditions relating to the elimination of impediments to SoftKey's superior
proposal. As you will note from the enclosed form of merger agreement, we are
prepared to drop certain conditions from our tender offer upon your execution
of the merger agreement.
SoftKey today is filing a complaint against The Learning Company,
members of The Learning Company's Board of Directors and Broderbund in the
Court of Chancery of the State of Delaware. The complaint seeks injunctive
relief requiring The Learning Company's Board of Directors to redeem its
stockholder rights plan and to correct false and misleading statements made in
its Proxy Statement relating to the proposed Broderbund merger. SoftKey is
also filing preliminary proxy materials in connection with its solicitation of
stockholders of The Learning Company to vote against the merger with Broderbund
at its special stockholders' meeting. SoftKey also intends to seek to call a
special meeting of The Learning Company's stockholders to remove and replace
The Learning Company's Board of Directors.
In view of the importance to your stockholders of receiving the
highest value for their shares and the need for adequate time for the Board of
Directors to evaluate the two competing proposals, we believe it is essential
that you take prompt action to postpone the November 9 Special Meeting of
Stockholders.
As you can appreciate, with a proposal of this type, time is of the
essence. Please call us later today so that we can schedule a meeting with
representatives of The Learning Company to discuss our proposal.
Very truly yours,
/s/ Michael J. Perik
Chairman and
Chief Executive Officer
/s/ Kevin O'Leary
President
-more-
<PAGE> 1
EXHIBIT 99.3
<TABLE>
SOFTKEY INTERNATIONAL INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
PRO FORMA
SOFTKEY MECC ADJUSTMENTS PRO FORMA
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 87,103 $21,300 $338,375(c) $446,778
Accounts receivable, net.................. 28,410 5,886 -- 34,296
Inventories............................... 13,732 2,083 -- 15,815
Other current assets...................... 12,176 811 -- 12,987
-------- ------- --------
141,421 30,080 338,375 509,876
Property and equipment, net.................... 14,181 3,251 -- 17,432
Goodwill and other assets, net................. 62,817 580 352,004(a)(c) 415,401
-------- ------- --------
$218,419 $33,911 $690,379 $942,709
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities............................. $ 31,139 $ 3,054 20,080(a) $ 54,273
Current portion of long-term
obligations............................. 7,214 702 -- 7,916
-------- ------- --------
38,353 3,756 20,080 62,189
Long-term obligations.......................... 4,378 534 350,000(c) 354,912
Deferred income taxes.......................... 4,339 -- -- 4,339
-------- ------- --------
47,070 4,290 370,080 421,440
STOCKHOLDERS' EQUITY........................... 171,349 29,621 320,299(a) 521,269
-------- ------- --------
$218,419 $33,911 $690,379 $942,709
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
III-1
<PAGE> 2
<TABLE>
SOFTKEY INTERNATIONAL INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
PRO FORMA
SOFTKEY MECC ADJUSTMENTS PRO FORMA
---------- ------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES...................................... $ 119,408 $22,163 $ -- $ 141,571
COST OF REVENUES.............................. 38,563 4,164 -- 42,727
---------- ------- ----------- ----------
GROSS MARGIN.................................. 80,845 17,999 -- 98,844
OPERATING EXPENSES:
Sales, marketing and support............. 27,570 7,890 -- 35,460
General and administrative............... 15,979 2,100 -- 18,079
Amortization of Goodwill................. 2,305 -- 85,095(b) 87,400
Research and development................. 8,764 4,772 -- 13,536
---------- ------- ----------- ----------
54,618 14,762 85,095 154,475
---------- ------- ----------- ----------
OPERATING INCOME (LOSS)....................... 26,227 3,237 (85,095) (55,631)
INTEREST INCOME (EXPENSE), net................ 517 674 -- 1,191
---------- ------- ----------- ----------
INCOME (LOSS) BEFORE TAXES.................... 26,744 3,911 (85,095) (54,440)
PROVISION FOR INCOME TAXES.................... 3,906 1,099 -- 5,005
---------- ------- ----------- ----------
NET INCOME (LOSS)............................. $ 22,838 $ 2,812 $ (85,095) $ (59,445)
========== ======= ========== ==========
NET INCOME (LOSS) PER SHARE -- FULLY
DILUTED..................................... $ 0.83 $ (1.71)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -- FULLY
DILUTED:.................................... 27,447,000 7,370,000 (d) 34,817,000
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
III-2
<PAGE> 3
<TABLE>
SOFTKEY INTERNATIONAL INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
PRO FORMA
SOFTKEY MECC ADJUSTMENTS PRO FORMA
---------- ------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES..................................... $ 90,123 $16,136 $ -- $ 106,259
COST OF REVENUES............................. 30,065 3,254 -- 33,319
---------- ------- ----------- ----------
GROSS MARGIN................................. 60,058 12,882 -- 72,940
OPERATING EXPENSES:
Sales, marketing and support............ 19,794 5,947 -- 25,741
General and administrative.............. 16,160 1,645 -- 17,805
Amortization of Goodwill................ 527 -- 85,095(b) 85,622
Research and development................ 4,916 4,053 -- 8,969
---------- ------- ----------- ----------
41,397 11,645 85,095 138,137
---------- ------- ----------- ----------
OPERATING INCOME (LOSS)...................... 18,661 1,237 (85,095) (65,197)
INTEREST INCOME (EXPENSE), net............... (313) 196 -- (117)
---------- ------- ----------- ----------
INCOME (LOSS) BEFORE TAXES................... 18,348 1,433 (85,095) (65,314)
PROVISION FOR INCOME TAXES................... 4,061 638 -- 4,699
---------- ------- ----------- ----------
NET INCOME (LOSS)............................ $ 14,287 $ 795 $ (85,095) $ (70,013)
========== ======= ========= ==========
NET INCOME (LOSS) PER SHARE -- FULLY
DILUTED.................................... $ 0.74 $ (2.49)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -- FULLY
DILUTED:................................... 20,355,000 7,416,000(d) 27,771,000
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
III-3
<PAGE> 4
<TABLE>
SOFTKEY INTERNATIONAL INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
FOR THE YEAR ENDED
---------------------
DECEMBER MARCH
31, 31,
1994 1995
---------- ------- PRO FORMA
SOFTKEY MECC ADJUSTMENTS PRO FORMA
---------- ------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES...................................... $ 121,287 $28,046 $ -- $ 149,333
COST OF REVENUES.............................. 39,085 5,685 -- 44,770
--------- ------- --------- ---------
GROSS MARGIN.................................. 82,202 22,361 -- 104,563
OPERATING EXPENSES;
Sales, marketing and support............. 27,274 9,665 -- 36,939
General and administrative............... 21,306 2,728 -- 24,034
Amortization of Goodwill................. 1,185 -- 113,460(b) 114,645
Research and development................. 6,696 5,478 -- 12,174
--------- ------- --------- ---------
56,461 17,871 113,460 187,792
--------- ------- --------- ---------
OPERATING INCOME (LOSS)....................... 25,741 4,490 (113,460) (83,229)
INTEREST INCOME (EXPENSES), net............... (535) 575 -- 40
--------- ------- --------- ----------
INCOME (LOSS) BEFORE TAXES.................... 25,206 5,065 (113,460) (83,189)
PROVISION FOR INCOME TAXES.................... 4,061 1,270 -- 5,331
---------- ------- --------- ----------
NET INCOME (LOSS)............................. $ 21,145 $ 3,795 $(113,460) $ (88,520)
========== ======= ========= ==========
NET INCOME (LOSS) PER SHARE -- FULLY
DILUTED..................................... $ 1.04 $ (3.28)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -- FULLY
DILUTED:.................................... 21,115,000 5,618,000(d) 26,733,000
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
III-4
<PAGE> 5
SOFTKEY INTERNATIONAL INC.
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
On October 30, 1995, SoftKey International Inc. (the "Company" or
"SoftKey") entered into a definitive merger agreement with the Minnesota
Educational Computing Corporation ("MECC"), a publisher and distributor of high
quality educational software for children, in exchange for approximately
8,000,000 shares of common stock and other consideration and costs with a total
estimated purchase price of approximately $370,000. The ultimate purchase price
will be conditional upon the number of shares issued to acquire MECC, which will
be in the range of approximately 7,100,000 to 9,200,000 shares dependent upon
the 20 day weighted average trading price of SoftKey Common Stock prior to
closing. The transaction will be accounted for as a purchase.
The pro forma combined condensed consolidated balance sheet includes the
financial statements of SoftKey and MECC at September 30, 1995, as if the
acquisition had occurred on September 30, 1995.
The pro forma combined condensed consolidated statements of operations set
forth the results of operations for the nine month periods ended September 30,
1995 and 1994 as if the acquisition of MECC by the Company had occurred at the
beginning of each period. The pro forma combined condensed consolidated
statement of operations for the year ended December 31, 1994 includes the
results of SoftKey for the year ended December 31, 1994 and the results of MECC
for the year ended March 31, 1995.
The pro forma combined condensed consolidated financial statements are
intended for information purposes and are not necessarily indicative of the
future consolidated financial position or future results of operations of the
combined entity. These combined condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1994, Form 10-Q for the six month period ended June 30, 1995 and MECC's
Annual Report on Form 10-K for the year ended March 31, 1995 and Form 10-Q for
the three month period ended June 30, 1995.
B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(a) The pro forma combined condensed consolidated balance sheet reflects
the purchase of MECC as if the transaction had occurred on September 30, 1995.
The pro forma adjustment to reflect the excess purchase price over the estimated
fair value of net assets of $340,379 is reflected in goodwill and other assets.
The ultimate allocation of the purchase price to the net assets acquired,
goodwill, other intangible assets and a charge for incomplete technology is
subject to final determination of their respective fair value.
(b) The pro forma combined condensed consolidated statements of operations
have been prepared assuming the acquisition of MECC was consummated at the
beginning of the fiscal year ended December 31, 1994 and the beginning of the
nine month interim periods ended September 30, 1995 and 1994. Pro forma
adjustments reflect the amortization of the excess purchase price over the
estimated fair value of the net assets acquired over the estimated useful life
of three years on a straight-line basis. Any allocation of the purchase price to
the fair value of incomplete technology could result in a material charge to
operations at consummation of the transaction and a corresponding reduction in
the amounts to be amortized. There were no intercorporate transactions that
required elimination.
(c) The pro forma combined condensed consolidated balance sheet reflects
the Company's issuance of $350,000 5 1/2 Senior Convertible Notes Due 2000 on
October 23, 1995 as if the issuance occurred on September 30, 1995. Transaction
related costs of $11,625 for investment banker fees, accounting and legal fees,
and other various deal costs have been included in other long-term assets.
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<PAGE> 6
(d) The pro forma combined condensed consolidated statements of operations
for the year ended December 31, 1994 and for the nine month interim periods
ended September 30, 1995 and 1994 include an adjustment to add back the common
stock equivalents in the fully diluted earnings per share computation as the
combined entity is in a loss position, and therefore the inclusion of common
stock equivalents would be antidilutive.
III-6
